Personal Income Tax Changes Cause Uncertainty for Taxpayers


Taxpayers expecting to receive the recent income tax cut subsidy of $1,080 have been left disappointed and confused when lodging their tax returns. This new tax cut does not entitle all taxpayers to receive this subsidy when lodging their 2018-2019 tax return leading to the Australian Taxation Office (ATO) being swamped with queries from taxpayers.

Changes Effective from 1 July 2018

The 2018-2019 Federal Budget saw the establishment of a low and middle income tax offset (LMITO) applicable to those taxpayers with a taxable income below $125,333. Further recent changes now see the LMITO paid to more taxpayers as the threshold increased to $126,000 (previously $125,333), the LMITO rise to $1,080 (previously $530) and the base amount rise to $255 (previously $200)

The Australian Taxation Office (ATO) are reminding taxpayers this is not a simple case of you receiving this money back and have communicated on their website “It doesn’t mean that you will get an extra $1,080 in your tax return.” It is a tax offset meaning it is subtracted from the amount of tax you owe based on your taxable income. If you have tax owing, the LMITO will simply decrease this amount first.   

Taxpayers entitled to the offset are reminded it pertains to their taxable income from the 2018/2019 financial year and only after lodging their 2018/2019 tax return will they be given any amount owed.

Taxable income* Offset minimum Offset maximum
<$37,000 $255 $255
>$37,000 – <$48,000** $255 $1,080
>$48,000 – <$90,000   $1,080
>$90,000 – <$126,000***   $1,080
$126,000+ $0 $0

 * Your taxable income is the income you earn less any deductions you claim – not your salary.
** offset entitlement is $255, plus 7.5% of the excess to a maximum of $1,080.
*** offset entitlement is $1,080, less 3% of the excess on taxable income above $90,000.

Did you earn a taxable income in the 2018-2019 financial year? Read on to discover how the LMITO applies to you.

If your taxable income for this period was less than $21,885 you do qualify for LMITO to the amount of $255, but you would not have paid personal income tax so are unable to take advantage of the offset.

A taxable income of $45,000 makes you possibly entitled to a low income tax offset (LITO). This figures also qualifies you for a tax reduction of $855. This figure is reached by calculating $255 plus 7.5% on each dollar between $37000 and $45000.

A taxable income of $85,000 or more qualifies you to be given a $1,080 tax deduction.

What Is a Low Income Tax Offset (LITO)?

A Low-Income Tax Offset (LITO) is a tax offset which decreasing the amount of tax paid by any taxpayer whose taxable income was less than $66,667 in a financial year. A taxpayer with a taxable income of $37,000 or less is entitled to the maximum offset amount of $445 however if you do not pay personal income tax, you are not entitled to the offset in the form of cash. It’s important to know that for every dollar you earn over $37,000 up to $66,667 (the LITO threshold) your tax offset decreases by 1.5%.

What changes will occur from 1 July 2022

As of 1st July 2022, assuming the Government doesn’t make changes, the income tax rate thresholds will be changing. These changes include a tax cut to both resident taxpayers and those taxpayers on a working holiday who earn over $18,200. This tax cut is courtesy of the 19% personal income tax bracket increasing from $37,000 to $45,000.

This new financial period will also see the low-income tax offset (LITO) rise for those taxpayers with a taxable income lower than $66,677 with the base amount rising $255 in total. However, the LITO will also decrease quicker than it does now. Amounts above $37,500 will decrease by 5% for amounts up to $45,000 and by 1.5% for amounts up to $66,667.

What changes will occur from 1 July 2024

The 2024/2025 financial year will see a change for several people (both resident and working holiday taxpayers) as the marginal tax rate decreases by 2.5% to 30% plus the maximum threshold rises to $200,000 (currently $120,000). These changes are once again dependent on the government not changing these amounts in a future Federal Budget.

Needing to Know More About Income Tax Changes?

The team at HBG Tax & Accounting are your local accountants in Rockingham who have all your tax needs covered for individual tax returns and business accounting matters too.

Call the team to make an appointment on 08 9594 1963 to discuss all your tax needs.

This article was written based on information supplied from Knowledge Shop Newsletter August 2019.

The material and contents provided in this article is of informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained by contacting HBG Tax and Accounting.

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